The Hindu Business Line : ‘Differential approach is the need of the hour’

Mumbai, Nov. 26 Dramatic contrasts exist among Indian banks in capabilities and a differential approach should be adopted to make them globally competitive, according to a study done by McKinsey.

While the leading Indian banks have done well in global comparisons, the overall industry presents an equal mix of opportunities and challenges to be addressed on a priority basis, Mr Joydeep Sengupta, Director and senior partner, McKinsey & Co, told the delegates at the Bancon 2007 here on Monday.

Positive side

On the positive side, the banks show significant focus on retail banking, superior organisational capabilities, maximum return to the shareholders and highly effective use of information technology, Mr Sengupta said.

Many banks show impressive performance on the liquidity front. “The liquidity and credit management is healthy for many Indian banks. Over 80 per cent of liability is on the deposit side and this is a healthy trend. However, the incumbent banks (next to highly profitable banks) are dramatically lagging behind in credit management practices,” he said.

The IT effectiveness of leading Indian banks is also much superior to those abroad. “The average IT spend per customer in India is between $10 and $15 as against $70 in the developed markets,” Mr Sengupta observed.

Negative side

On the flip side, the study finds that alarmingly low level of motivation among the staff can impact the industry growth if not addressed immediately. The equity returns on retail banking are remarkably low for the second rung banks. While retail banking leads the way ahead, it also means a longer wait for the incumbent banks to reap the fruits, the McKinsey official said.

Customer satisfaction

On the customer front, the study finds highest level of customer satisfaction in Asia at 85 per cent. However, this is not keeping pace with the growth of economy. In metropolitan areas such as Delhi and Mumbai, it is at around 61 per cent. “This shows that to remain on the treadmill, Indian banks should move faster to constantly ensure customer satisfaction,” he said.

The study has also identified some important aspects that should be debated by the policy makers and banks. They include need for differential regulatory mechanisms based on the capabilities of different banks, leveraging opportunities in international markets by leading banks and re-energising strategies for the second rung banks.

The study represents the aggregate findings derived by administering these five surveys at 14 leading banks in India – 7 leading public sector banks, 4 renowned private sector banks, and 3 established foreign banks.